Reuters / Brendan McDermid
- Recession cries grew increasingly loud as the stock market endured a turbulent end to 2018, with many business leaders bracing for a meltdown by the end of 2019.
- Goldman Sachs compiled a five-part checklist for investors who want to monitor recessionary risks.
As the market melted down at the end of 2018, cries for an imminent recession grew louder and louder.
Investors were clearly spooked by an economic slowdown in China, and balked at revised guidance from tech giants like Apple, which trimmed their sales forecasts in response. Fear that the weakness could spread globally escalated to the point where US stocks hung on the precipice of a bear market.
And if that wasn't bad enough, the world's biggest business leaders got in on the action. According to a New York Times survey of 134 business leaders at the Yale CEO Summit, nearly half said they expected a recession to strike by the end of 2019.
Goldman Sachs, on the other hand, says people need to hold their horses. The firm's economics team staunchly believes that recession fears are overdone, and that worried investors should instead be focused on the enticing prospect of continued economic growth through 2020.
"High personal savings rates, a sizeable private sector financial surplus, and strong real income growth suggest that the US economy should continue to grow at an above-trend pace this year," a group of Goldman strategists led by Arjun Menon wrote in a recent client note.
But don't let Goldman's near-term optimism fool you - the firm still has its eye firmly on the forces that could eventually send the US tumbling into a recession. To that end, they've formulated a checklist of five economic indicators investors would be wise to watch in the coming months. They are as follows:
1) A slowing of economic growth to below 1%, or the unemployment rate rises sharply
Third-quarter gross domestic product growth in the US was 3.4%, on an annualized basis, so that specific measure has a ways to go. Further, the unemployment rate is currently near its lowest level in 18 years.
2) A sharp rise in private sector financial balances
Goldman has crunched the numbers and found that this is a reliable leading recessionary indicator.
Goldman Sachs
3) A continued rotation into cash
Cash was surprisingly the best-performing asset class of 2018.
Goldman Sachs
4) An ISM manufacturing index decline below 50
This measure came in at 54.3 in December.
5) Flat industrial production
The most recent reading showed a 0.6% gain for the month of November.
Get the latest Goldman Sachs stock price here.